Every month, NAR puts out the latest Existing-Home Sales numbers. One component of this data that often makes it into the news – particularly lately – is inventory levels and months’ supply. These indicators are measures of housing supply. Here is a quick look at both of these terms.
NAR’s reported inventory indicates the number of properties marked as “active” on the market, as well as pending sales. When a seller lists a property, it becomes counted as inventory. When it goes under contract, it becomes a pending sale. Inventory is calculated monthly by taking a count of the number of active listings and pending sales on the last day of the month. If inventory is rising, there is less pressure for home prices to increase.
In December 2020, inventory was at 1,070,000 active properties listed on the market. This is down 16.4% from November 2020 (1,280,000). Compared with December of 2019 (1,390,000), inventory levels were down a marked 23.0%. This is a record-setting low since 1999, when NAR started tracking the data.
Months’ supply refers to the number of months it would take for the current inventory of homes on the market to sell given the current sales pace. Historically, six months of supply is associated with moderate price appreciation, and a lower level of months’ supply tends to push prices up more rapidly. In December 2020, the months’ supply was at a record low of 1.9 months, meaning that at the current sales pace it would take just 1.9 months for housing inventory to be depleted. This is down from the 2.3-month figure recorded the month prior (November 2020), and from the 3-month figure a year earlier in December 2019.